The suit also accuses trustees of Oregon's $58 billion pension fund of ignoring the deception and committing $1 billion in investments between 2008 and 2010 to risky real estate bets by Lone Star Funds, a private equity firm that purchases distressed companies and non-performing bank loans at deep discounts, according to The Oregonian.

Michael Mueller, the state's acting chief investment officer Lone Star's are arguably the premier set of funds the state has invested in over the years. "Getting 1.5 times your money back is something we would take any time," he said.

The lawsuit centers on a January 30, 2008, meeting where Lone Star pitched the Oregon Investment Council on two new funds it was raising to buy distressed real estate and bank loans. Weeks before the meeting, in a Korean fraud trial, prosecutors accused Lone Star of driving down the price of Korea Exchange Bank's credit card unit before Lone Star bought the bank in 2003. Oregon was an investor in that transaction through its investments in previous Lone Star funds.

The Oregonian reports that at the meeting in Oregon, Grayken was asked about the allegations by a member of the Oregon Investment Council, but dismissed them as political issues that were largely resolved. The Council did not press the issue, and at the conclusion of the meeting, voted to invest $600 million in the two funds.

Just two days later, the head of Lone Star's South Korean operations, Paul Yoo, was convicted of stock manipulation and sentenced to five years in prison.